Imports boost inventories

The U.S. exported a decent amount of cheese in 2012. In fact, all exports totaled 13% of U.S. milk production on a solids basis. While imports came in at around 7% of U.S. milk production on a solids basis, it’s what was imported that matters.

Three of the top-volume Harmonized Trade Schedule (HTS) imported cheddar cheese categories in 2012 were 129%, 14%, and 37% greater than for 2011, and in all cases the highest since 2009, according to recent data searches at the U.S. International Trade Commission website. This is significant because Cheddar is what is traded on the CME and used in federal order class and component formula pricing.

In addition, the three large-volume HTS categories of “cheese and cheese substitutes, including mixtures and American-style” were up 21%, 1%, and 10%, and the largest since 2009.

As for milk proteins... U.S. imports of HTS 0404 milk protein concentrates (MPC) were up 19% in 2012 compared with 2011 and the highest since 2008. U.S. imports of HTS 3501 MPC and caseins (the non-dairy classification) were up 5% and 13%, respectively, and in the case of 3501 MPC’s, the largest volume imported since 2008.

In the HTS 2106 “food preparation” category, imports in the category called “protein concentrates and texturized protein substances” have steadily increased since 2000 and were 34% greater in 2012 compared with 2011. These are typically mixtures of soy and whey or milk proteins and are not classified under dairy because they are not exclusively dairy proteins.

While the U.S. dairy industry benefits in the long term by making and marketing products in the global marketplace, and while the trade balance of exports over imports has been impressive the past few years, it is also apparent that certain types of imports can suppress the domestic market to dampen a much needed price rally to keep U.S. prices from surging ahead of world prices. Whether this is occurring to keep U.S. pricing below Oceania is unclear. It is interesting to me that from August of 2009 through June of 2012, the world price – actually the Oceania (New Zealand / Australia) price – for powder, butter, and cheese were higher than the U.S. price. But as soon as the U.S. domestic price gets outfront of Oceania a bit, import levels increase and keep a lid on that.

Meanwhile, it is the Fonterra New Zealand powder products that consistently command the best prices on the biweekly GDT.

Dairy culling highest since 1986

Remember the 1980s dairy herd buyout? All those dairy cows went to slaughter and crushed the beef price. 27 years later in January 2013, dairy producers ‘beefed’ the highest number of cows for any month since 1986, and while prices are fully $7 to $15 per hundredweight below the record high levels of last winter, they remain attractive by historical standards due to the smallest beef cattle herd since 1952.

One would think such a drought-diminished beef herd would push all cattle prices through the roof, but prices have retracted as packers decrease the available processing capacity.

In January, for example, Cargill idled its Plainview, Texas beef plant due to insufficient cattle in the region. Other plants throughout the country are curtailing shifts and consolidating operations.

Prices for the “Premium white cows” (cull dairy cows with good body condition) may begin to seasonally increase in April, and the March through July period is a seasonally higher priced time for all classes of cull cows. The U.S. now has the top “BSE rating” among countries that export beef, and Japan may relax the age requirement on the beef it imports from the U.S. As these developments begin to factor into the market, cull cow prices will undoubtedly strengthen.

Meanwhile, cattle inventory reports show there are plenty of dairy replacement heifers in the U.S. and Canada – combined – to replenish dairy herds after the increased culling.

After declining in January, dairy replacement cattle prices are recovering, to suggest future market strength for milk and beef.

In New Zealand, slaughter rates are also expected to top last year’s as their milking season comes to its yearly end. Drought declarations in the Northland, lower quality pastures, high costs for supplemental feeds, and rising beef prices all contribute to higher dairy cow slaughter rates. Like in the U.S., New Zealand is reported to have plenty of heifers to freshen in the next season.

CME spot and futures plummet

Cheddar prices plummeted this week on the CME spot cash market – down a nickel from last week at $1.6050/lb on 40-lb blocks and $1.58/lb on 500-lb barrels Wednesday, Feb. 27. Butter also fell to $1.55/lb. Nonfat dry milk (NFDM) fell below the $1.50/lb mark with the CME spot at $1.4975/lb Wednesday. This is interesting in light of the over 8 mil. lbs. of NFDM sold at a California Weighted Average Price of $1.5660/lb last week.

In the CME Group futures market, Feb. through Dec. Class III and IV milk contracts declined compared with last midweek. Wednesday’s Class III milk contracts averaged $17.77/cwt. for 11 months, while Class IV averaged $18.08/cwt.

FDA considers IDFA / NMPF petition

The petitions are four years old and seek permission to do what every other competing food product or beverage does – offer a non-caloric-sweetened choice in the marketplace. But judging by the “got aspartame?” and “what’s in your milk?” stories erupting on Social Media – accompanied by misleading photos of plain white milk that won’t even be affected by this petition – one would have thought the world was coming to an end and the dairy industry was going to secretly put aspartame in everyone’s milk.

The petition addresses flavored milk, yogurt and 16 other dairy products. The Nesquik “milkshake” line is one example of a flavored milk on the market using sucralose instead of sugar as its sweetener, but the name is “milkshake” not “milk.” That’s because the FDA standard-of-identity specifies the use of sugar, brown sugar or high fructose corn syrup in a flavored “milk.”

Where is the outrage and standard-of-identity enforcement of all the fake milks (soy, almond, coconut) calling themselves “milk?” Oh, that’s right, they aren’t really “milk” so they can use the name and artificial sweeteners, and that’s okay.

The IDFA / NMPF 2009 petition merely asks FDA to allow the use of “any safe and suitable sweetener” without violating the FDA dairy “standard-of-identity.” The sweetener choice would be listed on the ingredients label, not hidden. They say it would allow them to provide another choice in the marketplace, and they rightly point out that schools have new government-regulated sugar thresholds to meet for lunches, leading some schools to remove chocolate milk from the menu to comply.

Here’s a newsflash: Children are not overweight because of sugar-sweetened chocolate milk. In fact, “nations that consume a lot of milk also tend to produce a lot of Nobel Prize winners, a letter published in Practical Neurology has suggested” this week.

But to stay relevant with what’s happening among the food police, the dairy industry wants to offer a low-calorie choice in the marketplace.

Look for more on this subject in the coming weeks. FDA is receiving public comments until May 21, 2013.